The railways minister, Lalu Prasad, may be forgiven his self-congratulatory speech when he presented his sixth railway budget. In spite of an economic slowdown, the Indian Railways have met or exceeded revenue targets. But the sudden worsening in the operating ratio to over 88 per cent from just over 74 per cent in 2007-08 is cause for worry. To find the cause for this year’s decline, look no further than the Sixth Pay Commission’s recommendations that raised salaries and the burden on the exchequer. It is also going to have an adverse impact on the operating efficiency in 2009-10. More than half the arrears in pay will be made in the coming financial year.

But a much larger question looms: having achieved operational efficiency, how can the railways get competitive? The ministry of surface transport is already moving quickly on building the kind of road that can accommodate large 48 and 60 ton trucks, along the very Golden Quadrilateral connecting the country’s four metros — Mumbai, Delhi, Calcutta and Chennai — which accounts for at least 60 per cent of the Indian Railways’ own revenues. That high-speed-dedicated road corridor will threaten railway freight revenues and intensify competition. So far, the performance of the Indian Railways was helped by a booming economy and the industry’s ability to absorb freight rate increases without protest, of which there have been several. Freight accounts for over 65 per cent of total revenues, while passenger traffic accounts for just over 26 per cent. At some point, the Indian Railways may have to think about cutting freight rates to attract customers. Performance was also helped by increasing the volumes and weight that railway wagons carry: improving the net-weight to tare-weight ratio — the weight of goods actually carried per wagon as a proportion of the weight of the empty wagon — was among the first things that Mr Prasad focused on. He has also talked about introducing lighter wagons. The Indian Railways runs mixed traffic — freight and passenger trains — on the same set of tracks. By increasing the axle load — the maximum weight per pair of wheels that is allowed for a given section of track — the volume of bulk goods and the revenues from their freight have grown fabulously.

But less attention has been paid to maintenance or investment in new track that can bear the rising load, raising questions about safety: with higher axle loads, rails will have to be replaced sooner. Yet, in budget after budget, much more attention appears to have been paid to cutting fares and introducing more trains: 43 new trains in the coming year. At the same time, the biggest revenue-earning routes are oversaturated, stretched and neglected. Perhaps it is time for the Indian Railways to follow the tenets of the Harvard Business School, where Mr Prasad became a celebrated case study, and shift strategy.